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Zee Ent falls 7% as global brokerages see uncertainty despite Oppenheimer deal

The much-awaited stake sale deal announcement failed to cheer Zee Entertainment Enterprises (ZEEL) shares that fell 7 percent intraday on August 1. The Oppenheimer deal is definitely positive but global brokerages are not convinced expecting uncertainty to continue till September.

The company committed to its September-end 2019 deadline to repay all the lenders.

The stock lost nearly 40 percent in last one year due to debt burden and a bit of corporate governance issue. It was quoting at Rs 338.10, down Rs 23.35, or 6.46 percent on the BSE at 1100 hours IST.

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Majority of brokerage houses are not positive on the stock after existing investor Invesco Oppenheimer (which already held 7.74 percent stake in ZEEL) agreed to buy another 11 percent stake in ZEEL for Rs 4,224 crore (about one-third of the total group-level share pledge), implying a cost of Rs 400 per share.

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Oppenheimer's stake will rise to 18.3 percent post the pure equity deal whereas promoters shareholding will fall below 25 percent from 35.79 percent currently.

Out of total promoter shareholding of 35.79 percent, 63.98 percent shares are pledged with lenders as of June 2019.

"Along with ZEEL, Essel Group is also in the process of divesting some of its non-media assets. Essel Group is confident to complete the overall process of repayment, well within the agreed timeline," Zee said in its BSE filing.

Here is what brokerages say about Zee after a deal:

Brokerage: Citi | Rating: Neutral | Target: Rs 430 | Return: 19 percent

The stake acquisition by Oppenheimer up to 11 percent is not enough, said Citi which awaited clarity on the precedence of the repayment to the various lenders.

Hence, the brokerage maintained maintain neutral call on the stock with a target price at Rs 430 per share.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 400 | Return: 11 percent

Promoter stake sale deal is not the best possible as the deal addressed only part of the promoter debt problems, said Credit Suisse which has neutral rating on the stock with a target at Rs 400 per share.

There would be a collateral of Rs 12,000 crore, providing some comfort to lenders, it said.

Brokerage: BNP Paribas | Rating: Hold | Target:Rs 390 | Return: 8 percent

The uncertainty continues till September 2019 despite the deal announcement, promoter stake sale overhang will remain unless the group is able to repay its liabilities by September, said BNP Paribas which has hold rating on the stock with a target price at Rs 390 per share.

The downside risk is a further sale of pledged shares in open market, it said.

Brokerage: HSBC | Rating: Buy | Target: Rs 434 | Return: 20 percent

The transaction should help promoters to pare debt but the possibility of getting a strategic investor on board looks bleak, said the brokerage, adding ZEEL might have to swim through digitisation on its own.

HSBC maintained buy call on the stock with a target price at Rs 434 per share.

Brokerage: Axis Capital | Rating: Buy | Target: Rs 415 | Return: 15 percent

"The stake sale is healthy but overhang remained on ZEEL. Company will have to complete the sale of other assets within the stiff deadline and may have to sell an additional stake to address the possible shortfall. Hence we expect the stock to remain sideways over the next few months," said Axis Capital which has buy rating on the stock with a target at Rs 415 per share.

Brokerage: CLSA | Rating: Buy | Target: Rs 515 | Return: 42 percent

The 11 percent stake sale will allay near-term concerns, but the management and CEO continuity will be critical as the group still needs to repay remaining Rs 6,800 crore worth of loans by September and further 8-18 percent stake sale in company is likely, said CLSA that maintained buy call on the stock with a target price at Rs 515 per share.

Further stake sale could expose promoters to the risk of losing control, according to the brokerage.

Brokerage: Emkay | Rating: Sell | Target: Rs 341 | Return: (5.6%)

The deal comes with no lock-in period and the transaction only partially removes the pledge overhang.

However, the risk of a majority stake sale resulting in a cessation of Punit Goenka-led management team has also gone away. The team has delivered strong performance over the last 7-8 years, with cost-effective content creation and market share gains.

Weak cash generation in the last two years and weakening of balance sheet with aggressive content purchases, along with structural risks looming on the broadcasting business remain.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more. First Published on Aug 1, 2019 12:07 pm

tags #Buzzing Stocks #Stocks Views #Zee Entertainment Enterprises

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